Q.Write a short note on: Effective demand

Effective demand is the level of aggregate demand that equals aggregate supply — the point where the Aggregate Demand Price and Aggregate Supply Price are equal. At this point the equilibrium level of employment and national output is determined in the Keynesian theory.

Meaning

In the Keynesian theory of employment, the level of employment depends on aggregate demand. As the level of employment increases, both the Aggregate Supply Price (the amount producers must receive to offer that employment) and the Aggregate Demand Price (the amount they actually expect to receive from sales) change. The particular level at which the Aggregate Demand Price becomes exactly equal to the Aggregate Supply Price is called effective demand.

Explanation

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